Have Households Recovered Post 2008?

Aaron Dykxhoorn
Andreina Linares
Axel Peluso Nieto
Gabriel Braun
Jaroslav Cuculiza
Joseph Reed

FIN 669 – 57 – Strategic Asset Management

Prof. George Korniotis

January 25th, 2022

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The 2008 financial crisis had a dramatic impact on the wealth of households.

Graph 1

500.0 486.0
450.0
429.1 427.9
400.0 396.8
370.0
350.0 347.0 351.0
300.0
250.0
200.0
150.0
113.5 119.2 114.7 120.7 129.9
100.0 104.9 109.9
85.1 82.3 82.2 74.5 72.3 79.7 80.6
50.0 57.2 57.2 57.3 53.7 51.5 54.1 58.2
34.6 34.0 36.0 38.5 34.5 36.5 37.9
0.0
2001 2004 2007 2010 2013 2016 2019

Less than 25 25–49.9 50–74.9 75–89.9 90–100

Graph 1 Summary

90 – 100 decile households have recovered by 2016

75 – 90 decile households have recovered by 2016
50 – 75 decile households have not recovered by 2019
25 – 50 decile households have recovered by 2019

Less than 25 decile households increased their net wealth during the financial crisis due to
government help and subsidies but suffered between 2010 and 2013. They recovered their net
wealth by 2016. The top 90 – 100 deciles can observe the sharpest loss in wealth in 2007 –
2010 due to the higher allocation of wealth in financial securities and real estate. Despite this,
the 90 – 100 deciles experienced a sharp increase to new highs by 2016, while lower-income
households did not recover until 2019.

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 Table 1

Percentile of income 2004 2007 2010 2013 2016 2019

Less than 20 1.38% 3.40% 0.00% -3.95% 4.79% 3.27%
20–39.9 1.43% -1.41% -5.73% -4.56% 7.96% 5.01%
40–59.9 1.20% -0.85% -6.68% -4.77% 9.44% 3.70%
60–79.9 -0.42% 0.85% -8.35% -0.46% 7.76% 4.09%
80–89.9 1.91% -0.83% -5.73% 1.19% 7.98% 4.07%
90–100 -6.36% 19.85% -16.24% 10.04% 20.99% -9.28%

Table 2

Percentile of net worth 2004 2007 2010 2013 2016 2019

Less than 25 -1.73% 5.88% 6.94% -10.39% 5.80% 3.84%
25–49.9 0.00% 0.17% -6.28% -4.10% 5.05% 7.58%
50–74.9 -3.29% -0.12% -9.37% -2.95% 10.24% 1.13%
75–89.9 5.02% -3.78% -8.54% 4.77% 9.83% 7.62%
90–100 -6.22% 23.66% -18.20% 13.05% 22.48% -11.95%

From Graph 1, the recovery of average net wealth was notably faster for higher decile
households (over the 75th percentile). By 2016, 90-100 decile households have overpassed
pre-crisis net wealth by far. Unfortunately, wealth groups lower than the 75th percentile had
slowly recovered their levels of wealth by 2016-2019. A reason for this could be real estate
making up a sizable percentage of these individuals’ portfolios.

Regarding tables 1 and 2, it can be observed that by 2016 all income and wealth groups have
recovered, especially the higher percentile.

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 Graph 2

150.0
131.3
119.7 114.8 122.8
111.1 109.4 106.2 112.0
100.0
90.7 86.4 87.0 92.5
79.2 77.5
55.7
53.9 53.5
52.9 59.2
56.0 59.7 61.0
57.5 59.6
58.5
50.0 50.0 48.4
47.2

0.0
2001 2004 2007 2010 2013 2016 2019

White non-Hispanic
Black or African-American non-hispanic
Hispanic or Latino
Other or Multiple Race

Table 3

Race or ethnicity 2004 2007 2010 2013 2016 2019

White non-Hispanic
Black or African- -1.53% 9.41% -11.28% 8.10% 14.37% -6.47%
American non- -1.86% 5.86% -10.71% -5.60% 21.82% 3.65%
Hispanic or Latino
Other or Multiple -3.95% 10.65% 0.84% -18.93% 26.03% -4.10%
Race 14.5% -4.7% 0.7% -10.9% 19.4% 21.1%

White non-Hispanic groups have shown better ability to recover from the post-2008 crisis.
Multiple-race groups followed this group. Both groups have exceeded their net wealth levels
by 2016. Nevertheless, Hispanic or Latino and Black or African American groups have been
more negatively affected by the 2008 crisis. Although they have recovered by 2008, their
recovery has stalled since then. According to Graph 3, on average, Black or African American
households and Hispanic or Latino households fall below the $75,000 annual income level,
directly correlating with the data from Graph 1 (Household Net Wealth). The lower income
levels are directly correlated with the Net Wealth of Racial Groups.

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 Graph 3

Average wealth has recovered after a long time. The recovery was much slower for some
middle-income individuals due to a substantial portion of their wealth being allocated in their
primary residence or real estate investments. It is observable from Graph 4 that individuals in
the 30 – 70 decile range have a much higher portfolio share in real estate than lower and upper
decile income classes. This disproportionate allocation of wealth in real estate has significantly
impacted the middle class, stagnating their recovery from the 2008 crash. For wealthier
individuals, the asset mix is much more balanced, creating a more diverse portfolio mitigating
some of the effects of the 2008 housing crash.

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 Graph 4

Recovery rates tended to be higher for the highest net wealth and income groups because of
their preexisting wealth. Moreover, wealthy people have the economic resources to make
financial gains during times of crisis.

White Americans had the fastest recovery due to pursuing higher levels of education which led
to becoming more financially literate. Through financial literacy, White Americans understood
and evaluated their financial standing and sought out help from financial advisors in terms of
managing and growing their wealth. Based on the data, other ethnic groups tend not to achieve
such higher education levels, which impacts their recovery rates.

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The impact of COVID-19 has caused millions of workers to lose their jobs.

The labor market pained during the first period of the pandemic; total unemployment jumped
to 15% (Graph 5). Previously existing inequalities have caused unequal impact across
different income groups. Based on Deloitte Insights, the decline in employment was much
higher for in-person low-paying jobs. Instead, higher-paying jobs quickly adapted to
homeworking, suffering lower levels of unemployment. This caused higher measures of
income inequality during 2020. Nonetheless, support programs and subsidies from the
federal government in $5.4 trillion have mitigated the impact of COVID-19, particularly in
lower-income groups. However, it has created inflation that erodes all groups' purchasing
power, particularly affecting those with less economic resources.

Moreover, the U.S. government's expansive fiscal and monetary policy likely offset the
income inequality generated by the elevated levels of unemployment and economic crisis.
Although the labor market has been recovering since mid-of last year, returning to pre-
pandemic levels, the income inequality may widen again as the government support is
withdrawn.

Graph 5

Source: Bureau of Labor Statistics

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After 2020 Q1 losses in the financial markets, efforts by the Federal Reserve, U.S. Treasury,
and Congress not only stabilized the markets but generated over $18 trillion in wealth for
U.S. Households. However, this information, contrasted with the current knowledge on U.S.
households’ asset mix across income deciles, offers insights into who benefited from the
financial markets’ stellar performances from late 2020 through 2021. It becomes apparent
from observing the asset mix of lower to upper-income individuals from Graph 6 that the bull
run of the financial market's benefits households in the upper-middle and wealthy class
individuals. Typically, those with income in the lower deciles hold little to none of their
wealth in financial securities (and if so, have individual stock in employer companies with
high exposure to risk), with the most significant share of wealth in assets with no growth
potential (cash and vehicles).

Graph 6

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References:
Deloitte. (2021, November 10). U.S. inequality after the pandemic. Retrieved from
https://www2.deloitte.com/us/en/insights/economy/issues-by-the-numbers/covid-
impact-on-income-inequality.html
FED, F. R. (n.d.). Survey of Consumer Finance. Retrieved from
https://www.federalreserve.gov/econres/scfindex.htm
FINRA investor Education Foundation investor ... - sec.gov. (n.d.). Retrieved January
24, 2022, from https://www.sec.gov/spotlight/fixed-income-advisory-
committee/finra-investor-education-foundation-investor-households-fimsa-
040918.pdf
The employment situation - U.S. bureau of labor statistics. (n.d.). Retrieved January
24, 2022, from https://www.bls.gov/news.release/pdf/empsit.pdf